Liberia Urged to Boost Capacity to Handle Resource Revenues

Rising iron ore revenues could be joined by oil earnings in next decade

May take years to advance natural resource revenue agenda effectively

Liberia can learn from experience of other resource-rich countries

Liberia should act quickly to ensure that it has the capacity to manage rising revenues from its natural resources, speakers told a seminar in Monrovia.

Participants at the March 18 event heard that revenues from Liberia’s increasing iron ore exports could be augmented by earnings from crude oil within the next decade, and that these new revenue streams would have to be managed by the West African nation’s authorities.

The seminar “Managing Natural Resource Revenue in Liberia: Opportunities and Challenges Managing Resources for Sustained Economic Development” was organized by the IMF in collaboration with the International Growth Center and the Ministry of Finance.

The event brought together more than 100 participants including senior government policymakers, international experts in the field of natural resource management, legislators, private sector representatives, as well as development partners and civil society organizations.

Time to build capacity

“We recognize that over the next four or five years we will have more iron ore and we may well have oil coming on stream,” Deputy Minister of Lands, Mines, and Energy Sam Russ told the seminar. “We have the time to build capacity. We have to start bringing in people with expertise to help us.”

Deputy Finance Minister for Revenue James Kollie said Liberia’s chosen resource revenue management regime should reflect the country’s capacity to implement it. Kollie noted that Liberia had established a natural resource tax unit within the Finance Ministry, and was working with the IMF and others to train personnel.

Acting Finance Minister Sebastian Muah told the seminar Liberia was about to go down a path that the country had not traveled on before. “If we must do it right, we have to have all the relevant information, so our decisions are done properly,” he said.

Muah stated it would take years to advance the agenda of managing natural resource revenue effectively. “We need resources, we need people, and we need all of these coming together to get us there.”

Other countries’ experience

The seminar also heard that Liberia can learn from a wealth of experience of other countries as it seeks to better manage the revenues from its abundant natural resources. Speakers at the event cited the track records of nearby and neighboring countries such as Ghana that had also adopted new policies to handle revenues from natural resources.

IMF mission chief for Liberia Catherine McAuliffe said natural resource revenues could bring to Liberia faster reconstruction, development, and poverty reduction, and could help the country's transition to a middle-income economy by 2030.

“With such abundant natural resource potential, Liberia is poised to receive significant foreign investment in its natural resources. However, there are also risks, unless resources are properly managed,” McAuliffe said.

Spend or save

Several important decisions would need to be made ahead of large-scale resource flows coming on stream, including tax policy decisions on raising revenues through a variety of tax instruments, McAuliffe stated. Decisions would also need to be taken on managing resource revenues—that is, whether to spend or save for future generations—and through all this ensuring transparency.

Recurring themes from the seminar speakers included

● The conversation on resource revenue management in Liberia is still at an early stage, with the possible start of oil production still several years in the future.

● At this early stage, the emphasis should lie on engaging the public, framing expectations, and building constituencies to support the tasks ahead.

● A resource revenue management strategy is inextricably linked to other broad issues in Liberia's development and should be embedded into overall economic management.

● Other countries have track records in pursuing the different resource revenue management strategies—Liberia can learn from decades of experience in other places.

● Part of revenue management means getting revenue in the first place by optimizing the taxation of resource extraction.

● There are other sources of revenue besides oil—most notably iron ore—that could also fit into a resource revenue management strategy.

● Capacity should be built to manage resource revenue and, more importantly, expenditure. The stakes are high enough for Liberia to import the needed capacity on a short-term basis, while setting up local bodies to shadow and eventually replace the contractors.

● Rules, institutions, and transparency are vital for effective citizen monitoring and for the attraction and retention of profitable and responsible companies. These companies would pay taxes, employ Liberians, and ultimately be a source of prosperity long after the resources have been exhausted.

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